AbstractUsing two different data sets, both derived from the personal income tax files, this paper analyses income inequality and the effects of the personal income tax on after-tax income of employees in Slovenia. It has been shown by using the Kakwani index of progressivity that increases in tax progressivity came in leaps and bounds upon the introduction of new PIT legislation. After the early years of transition (1991-1993), characterized by a large increase in income inequality, the distribution of income has experienced rather small changes; this can be attributed to the introduction of the minimum wage and introduction of a tripartite institution (The Economic and Social Council), responsible for wage negotiations. Inequality of employee’s income has even been decreasing since 2005; some of this decrease is due to changes in the tax base, as PIT legislation introduced schedular taxation of capital income in 2005 and differentiated tax allowances in 2008. The share of income accruing to the top 1% of earners has not been increasing, but has been fluctuating, though on a decreasing trend in the last 10 years.